20

Genesco
Matt's Fundamental Stock Analysis
Content Disclaimer: I am only a retail investor and I only intend these reports to be used as a guidance. I recommend you do your own research as this will better help you to understand how companies work and operate and what drives their growth. What stocks you decide to purchase, should be chosen by you and this report is made only to display companies which I think are worthwhile to look at and discuss. Just because it is a good company or I like the company does not mean that it will do good in the future. If you want to copy or replace my report, please do so with a link connecting to my blog.

Genesco (GCO) Company Business Genesco is a specialty retailer of footwear and headwear, they are also a wholesaler of footwear. They operate under 5 business segments consisting of: Journey's Group, Hat World/Lids Group, Underground Stations Group, Johnston & Murphy, and the licensed brands. As of the end of fiscal 2011, GCO has 2,309 retail stores located throughout the U.S., Puerto Rico, and Canada. Journey's Group: Seek to be the number-one specialty retailer for teens Plan to further grow in Canada o Opened 3 stores in Canada during fiscal 2011 and they achieved good early results As of end of Fiscal 2011, there were 1,017 Journeys, Journey Kidz and Shi by Journey Stores, which amounted to 45% of GCO's revenue in fiscal 2011 Lids Includes LIDS retail headwear stores, the LIDS Locker Room, LIDS Team Sports, LIDS Clubhouse and its e-commerce business Leading national retailer of licenses sports headwear Made a bunch of small acquisitions during fiscal 2011 o Should result in increased customer experience and possibly increased sales As of end of Fiscal 2011, there were 985 Lids retail stores which amounted to 34% of GCO's revenue in fiscal 2011

Johnston & Murphy As of end of Fiscal 2011, there were 156 stores which amounted to 10% of Genesco's sales Licensed Brands Includes their licensed Dockers Footwear and Chaps Footwear Has the highest operating margin for FL Amounted for 6% of GCO's revenues in fiscal 2011 FL believes there is high potential within this business segment Underground Station Group Amounted to 5% of GCO's revenues in fiscal 2011 Closed 19 stores during fiscal 2011 and have 151 stores at end of fiscal year 2011 Plans to close more underperforming stores, while assessing the future prospects for this business segment o Seems like they are not confident with the growth prospects of this brand and in the meantime are trying to cut down rent expenses

Financial Target (Goal): Annual sales of at least $2.3 billion by fiscal 2015 with earnings growth being 15%-20% annually o Result of these goals would bring operating margin to around 8% o These target goals results from a moderate assumption of 3%-4% same store sales annually They plan to add around 300 net stores Success of this plan is expected to produce significant cash flow which may be used to provide for future growth opportunities Current Growth Strategy: Believes it can generate organic growth for many years by: o Increasing the amount of stores o Increasing retail square footage o Improving comparable store sales o Increasing operating margin o Enhancing the value of its brands Starting in Fiscal 2010, GCO new store growth rate has been decreasing as the company focused more on inventory management and generating cash flow in order to respond to economic conditions Aside from its organic growth, GCO also grows through its acquisitions It has made acquisitions in the past and expects to consider acquisitions opportunities in the future which will help their business grow further Additional Information: Share repurchase program o Share repurchase of $100 million has been fulfilled during fiscal 2009 and fiscal 2010 o Program extended in Q1 2011 in order to provide an additional $35 million shares to be repurchased o During Fiscal 2011, they repurchased $24.8 million out of the $35 million repurchase program Competition: Consist of Collective Brands, Bakers Footwear Group, Foot Locker, and Finish Line Financial Statement Notes: No long-term debt has been present for the last 2 years Capex has been decreasing the past 3 years Capex is expected to increase to $55.9 million in Fiscal 2012 o Plan on opening 20 Journey stores, including 8 in Canada o Open 7 Journey Kidz stores o Open 12 Johnston & Murphy stores

Open 45 Lids Locker Room stores in Canada Overall they expect to continue a slowing down of number of stores created per year Earnings from operations in 2009 is very high mainly due to the gain from settlement of merger amounting to $204,075 thousand

Threats: Success is dependent on the overall health of the economy

Historical Ratio Analysis **If the value is green than the number is believed to be better than the previous number, vice versa if the value is
red

Profitability Ratios
ROE ROA ROIC CROIC

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

19.9% 8.7% 13.3% 27.8%

2003

13.3% 6.7% 11.3% 20.0%

2004

17.7% 7.6% 11.2% 23.5%

2005

18.0% 9.1% 13.5% 29.1%

2006

16.7% 9.3% 12.7% 31.7%

2007

1.6% 0.9% 3.6% 22.6%

2008

34.1% 18.7% -6.6% 36.3%

2009

4.9% 3.3% 7.1% 19.9%

2010

8.5% 5.5% 8.8% 20.5%

2011

11.5% 6.6% 9.5% 20.9%

2012

CROIC has been very attractive over time

0.53 1.96 0.73 0.04 0.01

Solvency Ratios

Quick Ratio 1.14 1.26 0.76 0.71 0.55 0.57 0.66 0.94 0.65 Current Ratio 3.05 3.07 2.36 2.18 2.49 2.64 2.86 2.65 2.19 Total Debt/Equity Ratio 1.29 0.99 1.34 0.97 0.80 0.91 0.83 0.48 0.54 Long Term Debt/Equity Ratio 0.56 0.40 0.59 0.30 0.27 0.37 0.27 0.00 0.00 Short Term Debt/Equity Ratio 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Debt has been decreasing over time although its Quick and current ratio have also been decreasing
Efficiency Ratios
Asset Turnover Cash % of Revenue Receivables % of Revenue SG&A % of Revenue R&D % of Revenue
2003 2004 2005 2006 2007 2008 2009 2010 2011

2012

1.98 6.7% 2.3% 38.7% 0.0%

2003

1.95 9.7% 1.5% 39.7% 0.0%

2004

1.75 5.4% 1.6% 41.5% 0.0%

2005

1.87 4.7% 1.7% 41.8% 0.0%

2006

2.00 1.1% 1.7% 41.7% 0.0%

2007

1.87 1.2% 1.6% 46.4% 0.0%

2008

1.90 1.1% 1.5% 46.0% 0.0%

2009

1.82 5.2% 1.7% 45.9% 0.0%

2010

1.86 3.1% 2.5% 45.1% 0.0%

2011

1.85 2.3% 1.9% 44.0% 0.0%

2012

Liquidity Ratios
Receivables Turnover Days Sales Outstanding Days Payable Outstanding Inventory Turnover Average Age of Inventory (Days) Intangibles % of Book Value Inventory % of Revenue

1.87 8.5 72.4 2.60 140.44 0.0% 20.4%

2003

1.80 5.4 39.0 2.67 136.61 0.0% 20.0%

2004

3.17 5.9 42.6 3.00 121.67 55.7% 18.6%

2005

3.21 6.0 42.7 2.88 126.52 42.5% 18.0%

2006

2.98 6.0 32.6 2.97 122.97 13.4% 17.9%

2007

0.29 5.9 36.6 2.67 136.47 12.6% 20.0%

2008

6.36 5.6 34.6 2.54 143.47 12.0% 19.7%

2009

1.13 6.3 43.5 2.61 139.98 9.7% 18.5%

2010

1.48 9.1 48.1 2.73 133.73 10.4% 20.1%

2011

1.86 7.0 44.6 2.86 127.47 13.0% 19.0%

2012

P/E P/S P/Tang BV P/CF P/FCF

9.08 0.44 1.99 4.58 3.95

17.49 0.59 2.30 7.32 7.36

15.71 0.71 6.57 7.79 6.66

16.91 0.86 5.48 8.58 7.13

14.23 0.68 2.85 6.85 5.30

75.00 0.33 1.36 6.45 3.36

3.29 0.33 1.30 -4.66 2.07

21.95 0.43 1.28 6.43 4.84

17.91 0.53 1.70 8.19 6.39

21.37 0.76 2.80 11.50 8.96

From a relative price multiples basis, GCO looks to be slightly over-valued and possibly fairly valued

Relative Ratio Comparison GCO does not classify its competitors in their latest's annual statement. However, I believe there direct competitors to consist of Collective Brands (PSS), Weyco Group (WEYS), Bakers Footwear Group (BKRS), Foot Locker (FL), and Finish Line (FINL).
$ $ $ $ $ WEYS 23.97 262.00 280.98 27.25 20.82 15.1% 17.3 1.0 2.2 13.4 144.0 10.6 2.7% 2.1% 13.5% 46.5% 20.0% 1.0% 4.2% 12.3% 15.2% -5.4% 1.0 2.0 0.0 0.2 39.4% 38.3% 8.6% 10.0% 6.1% 7.1% 6.6% 8.0% 9.0% 10.0% 6.6 2.8 1.1 $ $ $ $ $ GCO 73.62 1,800.00 1,740.00 75.55 38.80 89.7% 20.7 0.8 2.4 0.0 0.0 8.4 0.0% 0.0% 0.0% 0.0% 29.1% 0.8% 9.4% 28.8% 49.9% 5.9% 0.5 1.9 0.0 0.1 50.4% 50.3% 6.3% 6.7% 3.6% 3.8% 7.5% 7.4% 12.4% 12.6% 52.0 2.9 2.1 PSS $ $ $ $ $ 19.60 1,190.00 1,620.00 23.16 9.11 115.1% 0.0 0.3 0.0 0.0 0.0 8.0 0.0% 0.0% 0.0% 0.0% 5.4% 0.3% 4.4% -328.6% -258.2% 0.0% 0.9 2.2 0.9 0.9 29.7% 32.9% -0.8% 2.2% -4.4% 0.3% -7.1% 0.4% -22.4% 0.1% 26.6 4.4 1.6 $ $ $ $ $ FL 31.12 4,730.00 4,000.00 32.27 16.66 86.8% 17.2 0.8 2.5 12.2 19.3 7.3 2.3% 0.0% 10.5% 36.2% 7.9% 0.8% -0.4% 45.0% 67.2% 2.7% 1.8 3.8 0.1 0.1 31.9% 28.7% 7.7% 2.4% 4.9% 1.8% 9.4% 3.1% 13.5% 4.4% 0.0 3.6 1.9 $ $ $ $ $ FINL 21.12 1,100.00 796.82 26.16 16.42 28.6% 13.2 0.8 2.1 0.0 0.0 4.9 1.1% 0.0% 16.0% 12.7% 18.6% 0.8% 0.6% 29.4% 27.9% 13.8% 2.4 4.0 0.0 0.0 35.1% 32.4% 9.8% 5.0% 6.2% 3.1% 12.3% 6.0% 16.6% 8.4% 0.0 4.3 2.0 $ $ $ $ $ BKRS 0.77 7.16 32.37 1.25 0.46 67.4% 0.0 0.0 0.0 0.0 6.7 -21.8 0.0% 0.0% 0.0% 0.0% -0.9% 0.0% -1.0% -7.2% 0.4% 0.0% 0.1 0.6 0.0 0.0 26.7% 27.8% -4.0% -4.5% -4.8% -5.6% -18.6% -16.5% 0.0% -55.3% 103.6 5.0 3.9

Stock Price Mkt Cap ($M) EV 52 Wk High 52 Wk Low % off 52Wk Low

Multiples
P/E(TTM) P/S(TTM) P/Tang BV(MRQ) P/CF P/FCF(TTM) EV/EBITDA(TTM)

Dividends
Div Yld Div Yld - 5yr avg Div 5yr Grth Payout Ratio(TTM)

Growth Rates
Sales(MRQ) v 1yr ago Sales(TTM) v 1yr ago Sales 5yr Grth EPS(MRQ) v 1yr ago EPS(TTM) v 1yr ago EPS 5yr Grth

Balance Sheet
Quick Ratio(MRQ) Current Ratio(MRQ) LTD/Eq(MRQ) Tot D/Eq(MRQ)

Margins
Gross %(TTM) Gross % 5yr Op %(TTM) Op % 5yr avg Net %(TTM) Net % 5yr avg

Returns
ROA(TTM) ROA 5yr avg ROE(TTM) ROE 5yr avg

Efficiency
Rec Turnover(TTM) Inv Turnover(TTM) Asset Turnover(TTM)

On a relative multiples basis DEST looks over-valued compared to competitors Take on less debt than their competitors Growth figures are absolutely spectacular compared to its competitors ROA and ROE are about average compared to competitors

Investment Valuations Reverse DCF Starting with a reverse DCF valuation, I will assume a discount rate of 12% and a terminal growth rate of 2.5%. (The terminal growth rate of any company should never be higher than the growth rate of the economy.) A reverse DCF valuation should be used just to see a rough picture of where the market has currently priced DEST based on fundamentals. Based on my assumptions the market has currently priced DEST to have a FCF growth rate of around a 8% - 8.5% year after year for the next 10 years with it gradually decreasing over the years, where then it will grow at its terminal growth rate. The range of the FCF growth is given due to the difference between TTM, annual, and average owners earning FCF input. This is a rough estimate number, however this is below its 5 year and 10 year historical averages. FCF growth is best to be looked at over multi-year periods as it is very volatile on a year to year basis. Actual Owners Earnings DCF This is the heart of my valuation of a company. I believe that a more reasonable estimate of around 5%7% for the next 10 years with it slowing down in the later years. Under my assumptions, I believe the intrinsic value to be around $62.66 on the safe side and on the more optimistic side $68.84.

80

5 Yr Price vs Intrinsic Value

70
60 50

40
30 20 10 0 25/07/2005 25/07/2007
Historical Price

25/07/2009
Intrinsic Value

25/07/2011
Buy Price

Graham Valuation The graham valuation is based upon EPS growth over time and includes analysts estimates of future EPS. I require a huge amount of margin of safety for this model as it is not as accurate as FCF, so around a 6080% discount. Based on this model with a long-term EPS growth rate of 8% and an expected EPS fiscal 2012 of $3.78, the intrinsic value comes out to $80.82 making it fairly valued. Especially for this stock, I am a bit skeptical of this model largely due to the income it received from the closed merger deal in 2009 which results in a huge diluted EPS of $6.49. FCFE Valuation The growth rate for this model is built around fundamentals, where it is equal to the non-cash return on equity multiplied by the equity reinvestment rate which gives us a net income growth rate of 23.69%. Reason being that we do not want to just guess a growth rate and it is better to get one from fundamentals, obviously the option to adjust these ratios can occur if needed. I believe this growth rate in net income is overstated and a growth rate of 15 - 20%% is more reasonable with it slowing down in the later years. According to this model, the intrinsic value is roughly around $23.41 - $33.35 making it largely over-valued. In fact if I were to leave the growth rate at 23.69% (the fundamental growth rate) the intrinsic value would still only come out to $57.33 which is still considerably below its current prices. Technical Analysis Looking at the chart below, technical analysis clearly provides a lot of information about this company. At the very least it shows that my FCFE valuation is not way out of whack. The stock has clearly run up a lot over a short time frame and is clearly over-valued. Technical analysis plays a big part on this stock in between the $12 and $40 price level.

Overview From a fundamental perspective, I have a hold rating on this stock with a price target of around the $50-$60 level. They have made key acquisitions which may add growth to the overall business, however I believe their growth prospects are already priced into this stock. From a technical analysis stand point I would be waiting until this stock came back to the below the $40 price point. Stock Rating: Hold Price Target: $50 - $60 Best Regards, Matthew

Matt's Fundamental Stock Analysis

Content Disclaimer: I am only a retail investor and I only intend these reports to be used as a guidance. I recommend you do your own research as this will better help you to understand how companies work and operate and what drives their growth. What stocks you decide to purchase, should be chosen by you and this report is made only to display companies which I think are worthwhile to look at and discuss. Just because it is a good company or I like the company does not mean that it will do good in the future. If you want to copy or replace my report, please do so with a link connecting to my blog.